ARM pays lower dividend as earnings plummet

JOHANNESBURG (miningweekly.com) – The headline earnings of diversified mining company African Rainbow Minerals (ARM) decreased 40% to R1 051-million in the 12 months to June 30.

Earnings a share were 494c, compared to 803c last financial year.

ARM, headed by executive chairperson Patrice Motsepe, declared its tenth year of consecutive dividend payments, at 225c a share, which was well down on last year’s 350c a share.

Basic earnings were a loss of R565-million, compared with basic earnings of R104-million last year, on a R1 404-million first-half impairment of the assets of the Lubambe copper mine.

Cost-cutting initiatives have resulted in unit-cost decreases at Lubambe, Modikwa platinum mine, Nkomati nickel mine, and iron-ore, manganese-ore and coal operations; there were also below-inflation unit production costs at Two Rivers platinum mine.

Record sales volumes of 17-million tonnes were achieved in iron-ore and the manganese-ore, platinum, nickel and coal operations increased sales volumes.

Attributable segmental capital expenditure (capex) reduced by R974-million to R2 352-million.

ARM and Impala Platinum reached an agreement to increase ARM's shareholding in Two Rivers from 51% to 54%, with Section 11 government consent to transfer ownership of mining assets from ARM to Two Rivers awaited.

ARM completed the sale of its 50% indirect interest in Dwarsrivier chrome mine for R450-million.

Restructuring of the ARM broad-based black economic empowerment trust has resulted in ARM’s R850-million guarantees in favour of the trust being cancelled.

The ARM Ferrous division delivered positive headline earnings while in the ARM Platinum division, Two Rivers contributed R318-million to headline earnings. Modikwa delivered a headline loss of R84-million and Nkomati a headline loss of R244-million, on sharp dollar and rand nickel prices.

ARM Coal incurred a headline loss of R297-million on lower dollar export coal prices, a decline in sales volumes and an increase in unit production costs at the Goedgevonden coal mine, together with higher interest charges.

The ARM Copper headline loss increased by 29% to R555-million on lower dollar copper prices and the weaker average rand/dollar exchange rate at which the results were translated.

These results were achieved together with ARM's partners at the various operations, made up of Anglo Platinum, Assore, Impala Platinum, Norilsk Nickel Africa, Glencore, Vale and Zambian Consolidated Copper Mines.

ARM said it expected the recovery in commodity prices to be relatively slow following 12 months of 23%-lower realised dollar iron-ore prices and 31% lower manganese prices.

In dollars,  platinum prices were 23% lower, palladium prices 28% lower and rhodium prices 40% lower. Dollar nickel prices fell 39% on last year and dollar export coal prices 25%.

The 27% weakening of the rand only partially offset the dollar price decline.

ARM said it was continuing to respond to the low commodity price environment by focusing on improving operational efficiencies and reducing unit costs, prudently deferring or reducing capex without negatively impacting the long-term value of operations, optimising working capital and restructuring loss making operations.

Iron-ore sales volumes were 5% higher to a record level of 17-million tonnes; manganese ore sales volumes were 13% to 3.1-million tonnes; Dwarsrivier chrome ore sales volumes rose 7% to 1.1-million tonnes; platinum group metals production volumes were 10% higher at 851 924 oz; and export coal sales rose 38% to 14.8-million tonnes.

Nickel sales volumes increased marginally to 21 592 t but manganese alloy sales fell on poor market conditions.

Export coal sales volumes at Goedgevonden were hit by a 22% fall in the mine's saleable production volumes on mining entering a localised geological mineralisation discontinuity and pinching area.

Goegevonden was also negatively affected by wage-related industrial action, delays in environmental approvals for the lower strip ratio pit and longer than planned downtime on equipment.

Goegevonden and the manganese alloys operations were the only operations that failed to achieve either decreases in unit production costs or increases below the inflation rate.

On a unit cash cost net of by-products basis Nkomati achieved a 14% reduction while Modikwa mine unit costs an ounce were 3% lower.

Two Rivers unit production costs an ounce were held at 5% while unit production costs at the manganese alloys operations were 9% higher as production volumes were strategically reduced in line with adverse
conditions in the manganese alloy market.

Goegevonden unit production costs rose above inflation by 27% as a result of a 22% decrease in saleable production volumes.

Due consideration is being given to ensuring that capex deferrals or cuts do not adversely affect operations or negatively impact on long-term value.